“Pension promises” are difficult. Lawyers tell me that the members of the University Superannuation Scheme (USS) do not have a contractual right to it. It could be argued that cutting off the oxygen of future accrual (as UUK are threatening to do) is the prerogative of the employer. This blog argues from a more common-sensical point of view.

If you are paid to be a lecturer, you consider your wages holistically – as total reward. Taking away your deferred pay (pension) is like taking away your actual pay. I dare say you can cut my salary, but you’d be well advised to get me to agree to the cut. So when I talk about broken promises – I’m talking about a failure to keep a promise – rather than a criminal act!

And of course , we’re all talking about what goes on in the future and not what has happened in the past. The past is another country and (thankfully) accruals to date cannot be put in jeopardy. Those accruals are rights not promises.

I have recently been interested in three instances where large employers have broken promises to staff about pensions.

Tata (and other former British Steel employers) broke a promise to fund the British Steel Pension Scheme. Steelworkers accepted the closure of the scheme as a way of keeping steel plants open. One way or another, the plants survive though the pension promise has been diminished. Most members of BSPS chose BSPS2 over the PPF – quite a few (who could) opted out of either.

Royal Mail, so over-protected its DB pension scheme that it found it could not afford to fund future accruals. Over a protracted period of negotiations, both sides came to the conclusion that it was in the best interests of all for Royal Mail to offer an upgraded DC solution in place of the broken DB pension – we know this solution as CDC or the “wage in retirement plan”. Royal Mail wasn’t broke (like Tata) but it’s pension scheme could have broken it.

The Universities (known collectively as “UUk”) are not broke, and it is highly debatable that their pension scheme will break them. The best explanation of why the promises made by Universities need not be broken is made here.

The Universities are a different case

Janet Beer

Despite my personal affection for my old teacher, I think Dame Janet Beer is wrong to have written the letter she did yesterday, trying to get the University’s Union – UCU, back to the negotiating table.

Re-reading the letter, I see a false assumption, an assumption that the UK Universities cannot afford to pay the DB promises they have made. The truth is that they can, but they want to do other things with the money they’d have to use to do so. It’s a case of discretionary spend.

Instead of assuming they are right, Janet Beer and others should be explaining to staff, as Royal Mail did, why it would be in everybody’s interest to accept the breaking of these pension promises. The Universities’ case is different because they are pressing on without the support of the unions or the members of their pension scheme (USS), Consequently they aren’t just facing, they’re experiencing strike action. The negotiations are not going well and UUk know it.

I will be in Cambridge this afternoon, watching a game of football. After, I’ll be spending time with students. All the indications I am getting is that Cambridge students are on the side of their teachers. They see things the way I see things – the Universities have not won the argument to close USS for future accrual (on any basis).

If and only if, UCU accept DB closure…

In its open letter to staff , UUK offer options for further discussion. These options do not get discussed until and unless an agreement is reached that the closure of the DB scheme is in the best interests of all – not just the employers.

While it is pleasing for me to hear that UUK acknowledge the existence of a CDC option (the one that was forged by Royal Mail and CWU), it is wrong of them to assume that they can use it to short-circuit the fundamental question about the breaking of the DB promise.

It’s heartening to hear that UUK still consider risk-sharing an option, this is- I think – code for a DB-lite solution , such as the WinRS scheme proposed by the CWU to Royal Mail (and rejected by the Royal Mail. This too could be discussed, if the case for breaking the DB promise was accepted.

Sally Hunt and the UCU are prepared to go back to the table

The UCU has said that it will go back to the negotiating table next week. They should go back to listen to the argument of UUK for why their members should accept broken promises. Some of that argument is rehearsed in Janet Beer’s letter, but simply saying you are right – does not make you right.

Sally Hunt is right on the money here

University and College Union general secretary Sally Hunt said: ‘Because this is so serious for students and for staff we will of course attend.

“I am however very concerned that UUK has explicitly ruled out discussing the imposed changes that have caused the strikes.”

No DC discussions without prior-agreement

But the UUK have not won their argument and cannot expect UCU to discuss any kind of DC solution (DC or CDC) – or indeed a dilution of the DB promise, unless both sides can accept a general way forward that justifies the breaking of the DB promise.

The people who fund the UUK are the tax-payers and the students (future tax payers and loan re-payers).

Janet Beer is on very weak ground as she has neither the support of the Unions, the students or the general tax-payer (well not me anyway!).

If the Universities want to pay their Vice Chancellors CEO wages, and build fine buildings and behave as if they were privately owned enterprises, then they will need to find a business model which the public buys into. They should stop behaving with ill discipline and poor governance.

They should come to the table next week with humility. They are asking UCU members to accept a broken promise and they need to do better at explaining the case to do that.

Part of that case, might be , that the alternative pension arrangement may not be so bad after all. But we can have no talk of CDC just yet. Professional Pensions claimed UUK were “jumping on the bandwagon”, there is of course no CDC bandwagon. CDC is no reason for UUK to break the DB promise.

The only bandwagon in town is the “let’s break our DB promise” bandwagon, which is sadly being driven around a large number of employers still accruing DB. CDC has nothing to do with this and any attempt by UUK to justify the breaking of the DB promise by offering CDC should be stoutly resisted. Resisted not just by UCU but by anyone who rationally calls themselves a “Friend of CDC”.

One Response to UUK – you cannot dictate the terms on which you break your promises.

The constant headline grabbing criticism damages faith in saving and gives the potential customer an excuse to not save, kicking the problem into the long grass. An example of the negative drip of news is given below.

Third of DB pension schemes could fail to pay members
One in three defined benefit (DB) pension schemes in the UK are at risk of failing to pay their members’ benefits in full, according to research by Punter Southall Transaction Services (PSTS).

We need to start with some fundamental objectives the first being to engage the member of the scheme. Financial literacy in the U.K. would appear to be on the decline from a very low base. This needs to be reversed.

Trustees need to be very clear on their objective to either have a sustainable long term scheme or are they just marking time preparing to close the scheme. Clearly the lack of ongoing cash flow will destroy all past assumptions and bring about disorderly failure from which the vultures will feast.

Those of us trying to advise the individual as a result of the actions of other players have a difficult task to get it right on an individual level explaining unfamiliar concepts such as sequencing risks,

The current “cynical bubble market” where current investments may well be over priced but the buyers hope is to move the asset on to an even more bullish or ignorant buyer exaggerates risk and with hindsight no doubt claims of misselling will occur.

The surviving IFA community funds such claims where as the DB community passes this cost on to the surviving customers. Which is why most thinking IFAs will not touch the transfer market unless there is a clear individual reason recognised by all to change the type of pension holding family value.these situations are set out in recent FCA papers